With the outlook for the U.S. Federal Communication Commission's national media ownership rules uncertain, Sinclair Broadcast Group Inc. President and CEO Christopher Ripley said the company might have to reconsider the structure of its pending deal to buy Tribune Media Co.
Speaking as part of a wide-ranging panel discussion on the future of TV station operations at the S&P Global Market Intelligence TV & Radio and Finance Summit in New York on June 14, Ripley addressed industry speculation that the FCC might streamline its rules by increasing the current limits on a broadcast station group's reach to 50% of U.S. TV households — up from the current 39% cap — while also eliminating a provision that allowed some stations' viewership to count less than others toward the overall limit. As it stands, even with announced divestitures, the Sinclair/Tribune deal would exceed a flat 50% cap by at least eight percentage points, according to an FCC filing.
"If that were to happen, I think there would be alternatives for restructuring the transaction," Ripley said of the potential 50% cap.
Nexstar Chairman and CEO Perry Sook said if the cap were changed to 50%, it is still likely to be challenged. "There might be some folks that would advocate for elimination of the cap that would sue and say, 'Let’s take another look at this.'" Conversely, he said the groups that oppose industry consolidation also might take legal action.
Some expect the matter to be addressed at the FCC's July 12 public meeting. Still, Sook said: "No victory in Washington is ever final; no defeat is ever fatal."
Retransmission-consent revenue was also a panel topic, with executives asked whether they think fees will reach $5 per subscriber on a monthly basis. In 2017, retrans per sub average rates rose 25.4% to an estimated $1.36 per subscriber on a station/network basis and $1.73 per subscriber on a market-level basis, according to an analysis of 13 publicly traded U.S. TV station groups by Kagan, a media research group within S&P Global Market Intelligence.
Sook said $5 was "absolutely achievable," adding "we get to terminal velocity in two more cycles in six years."
Ripley agreed. He said retransmission fees account for a small piece of programming costs, which he said are already being reset on the cable programming side — pointing to new Viacom Inc. carriage deals as an example — to be more in line in terms of compensation against audience delivery.
With 21st Century Fox Inc. poised to emerge as a new, leaner sports- and news-focused entity following either the consummation of a deal to sell various assets to either Walt Disney Co. or Comcast Corp., Joe Dorrego, executive vice president and CFO of Fox Television Stations, said "New Fox" would have more clout in future retransmission-consent negotiations.
Responding to a question about the new company's leverage, Dorrego said that while ratings will remain an important consideration, distributors would not want to lose the passionate audiences commanded by New Fox's portfolio, comprising the stations FOX (US), FOX News Channel (US), FOX Business Network (US) and FOX Sports 1 (US).
He said that theory will be put to the test shortly as FOX has negotiations with the majority of distributors over the next three years: "We'll get a first shot to reset out rates during this cycle and another one after that"
The TV executives also said they expect the legalization of sports team betting will manifest in significant advertising on the local TV level.
Looking back a few years ago, fantasy sports provided an advertising lift on the national level, and Dorrego believes the opportunities around team betting will come to Fox stations as well.
Ripley also has high hopes for the sports team betting category, saying it could generate between 10% to 15% of local station ad revenues, which would make it the second-largest segment behind autos, which drive about 25% of that business.
Speaking on a later panel, Television Bureau of Advertising President and CEO Steve Lanzano said he is bullish on sports-team betting boosting stations' ad revenue, but he tempered the optimism by noting the timing of rollouts. While Delaware and New Jersey, which began taking those kinds of bet June 14 are in the game, and another eight states may follow relatively quickly, 30 states are not far along at all in this pursuit, he said.